Weather Forecast

China's trade surplus with the US hit record $34.1 billion in September amid trade war

The Soro Enshi container ship at the Yangshan Deep Water Port in Shanghai on July 10, 2018. Bloomberg photo by Qilai Shen.

BEIJING - China's trade surplus with the United States hit a new record last month, defying - for now, at least - President Donald Trump's predictions that tariffs would help redress the trade imbalance.

Although economists expect the American tariffs to eventually have an impact, the trade statistics reinforce the widely-held notion here that there will be no quick end to the trade war between Washington and Beijing.

"It's obvious that the immediate effects of the trade war are the exact opposite of what the Trump administration had been planning," said Andrew Polk of Trivium China, a Beijing-based economics research firm.

"We expect the dynamic to change once we get a bit deeper into this, but for now China is trying to outrun the next round of tariffs," he said.

China enjoyed a record high $34.1 billion trade surplus with the U.S. in September, taking the surplus for the year to date to $225.8 billion, according to Chinese statistics released on Friday. That's significantly higher than the $196 billion recorded between January and September last year.

The increase, the result of both increasing exports from China to the U.S. - up 14.5 percent from the same month last year - and a decline in the goods that China is buying from the U.S.

More than the tariffs, the worsening trade imbalance is also a reflection of the two countries' economies, experts said. The U.S. economy is strengthening, with unemployment low and growth increasing, while the Chinese economy is slowing, sapping Chinese consumers' ability to buy imported goods.

The direct impact and indirect impact of the ongoing trade frictions is "generally controllable," Customs department spokesman Li Kuiwen said Friday. But global trade would continue to face challenges as the U.S.-China trade frictions "have been escalating and other unstable factors still exist caused by a number of economic uncertainties worldwide," he said.

The second round of tariffs that the Trump administration imposed on China came into effect only on Sept. 24, so the increase in exports last month might have been the result of Chinese companies rushing to sell their products before the additional duties were added.

After imposing tariffs on $50 billion worth of Chinese goods over the summer, the Trump administration last month added a 10 percent tariffs to another $200 billion worth of Chinese products, encompassing everything from household items like furniture and toys to industrial equipment. The tariffs are set to rise to 25 percent in January if the trade dispute is not resolved by then, and Trump has vowed to impose tariffs on the remaining $267 billion worth of Chinese imports.

China retaliated last month by putting tariffs ranging from 5 to 10 percent on $60 billion worth of American goods, coming into effect the same day as the American measures.

But it was still too early to see the impact of the tariffs, said Julian Evans-Pritchard, China economist at Capital Economics, a consultancy.

"The way the U.S. has structured the tariffs encourages frontloading because firms that know they're going to hit with tariffs would rather pay 10 percent than 25 percent," he said.

Plus, the 10 percent tariffs were almost entirely offset by the fall in the Chinese currency, which has depreciated by more than 8 percent since June. This makes Chinese products cheaper overseas.

Trump should take notice of the statistics, said Huo Jianguo, a trade expert at the Center for China and Globalization in Beijing.

"He won't be happy with these figures but it proves that tariffs don't help curb exports," Huo said. "Both sides need to find a way to talk and make some other arrangements."

Trump and Chinese president Xi Jinping have agreed to meet next month at the G-20 summit in Buenos Aires, in hopes of resolving their intensifying trade conflict. These would be the first direct talks since August, but with both sides digging in their heels, there are few hopes the leaders can secure a major breakthrough.

Trump said Thursday that his tariff strategy was working. "It's had a big impact," Trump said in an interview with Fox & Friends. "Their economy has gone down very substantially and I have a lot more to do if I want to do it."

But China has been standing firm, repeatedly saying that the only solution was through negotiation and compromise on both sides.

Trump's strategy amounted to "bullying," said Yu Xiang, division of American economic studies at the China Institutes of Contemporary International Relations.

"Bullying might be effective for small economic entities, but it will not be effective against a big economic power," Yu wrote in a column published Friday in the state-run China Daily. "The fight won't end in the blink of an eye, considering it is between the world's two biggest economies."

Indeed, analysts expect the trade imbalance to continue to widen over the next few months before the next round of American tariffs kick in, in no small part because the divergence in consumer demand in the two countries.

"China's trade surplus will keep rising because the domestic economy is cooling down," said Andy Xie, a Shanghai-based independent economist. "If China wants the surplus to come down, they have to embark on structural reforms."